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Jim Kieffer is the managing director of Artisan, and the portfolio co-manager of Artisan's three U.S. value funds. Kieffer and his two co-managers were recently named Morningstar's Domestic Stock Manager of the Year for their success in 2011. Recently, he sat down with Steve Forbes to talk about the secret to his success as a value investor. Video and a transcript of the first half of their conversation follows.

[forbesvid id="fvn/inidaily/jim-kieffer-artisan-funds-morningstar-stock-picker-pt1" showid="80"]Steve Forbes: Jim, good to have you back, and congratulations on being named U.S. Stock Fund Manager of the Year by Morningstar – you and your two colleagues.

Jim Kieffer: Thank you very much. It was quite an honor.

Forbes: And of course now we want to know: What's the secret to your success? You're a value stock investor. Give us, again, your own take on what value truly means.

Kieffer: Sure. I think as value investor what that means, quite importantly, is a focus on risk. It's quite easy to focus on return when you're investing. Say, "I expect to make so-and-so out of this stock." But you have to step back and also ask yourself, "Well, what are the risks that are involved?" How substantial are they? And how am I protecting myself?

Because you're going to be wrong in a lot of instances. Our focus is very much on risk. We call it a risk-aware approach. We look to stack the deck in our favor as much as possible – get the business on our side, get the balance sheet on our side and get valuation on our side. A one-liner would be “cash producing businesses in strong financial conditions selling at undemanding valuations.”

Forbes: Define undemanding valuations.

Kieffer: “Undemanding valuation” is going to depend, situation by situation. But just classically from the P/E perspective, think of it as high single-digits, low teens P/Es attracting our attention. Once a name moves into the mid teens, it's moved into more demanding territory from our perspective.

It could certainly be worth more than that. But if we can recycle that money back down into something at a lower valuation, you're again stacking the odds more in your favor with a lower-expectation situation.

Large-Cap Bargains

Forbes: Now you talk about large-cap, mid-cap, small-cap. And you make the observation that it's among the large caps that you have the biggest bargains now, even though among small caps nobody pays attention, so you'd think they'd be full of neglected bargains. Why are the biggies so cheap, in your mind?